Introduction

The Supreme Court of Queensland has recently tightened the definition of what constitutes a ‘construction contract’ for making a payment claim under the Building and Construction Industry Payments Act 2004 (Qld).

The Court found that where the parties had entered into a ‘Period Subcontract’ for works “yet to be agreed” and performed works under separate work orders and verbal directions, there was no single ‘construction contract’. The process under the security for payments legislation to resolve a payment dispute could not be used.   

The primary question was whether the Period Subcontract, the signed work orders, and the verbal directions constituted a single ‘construction contract’ for the purposes of the legislation, or whether they formed a series of separate individual agreements.

The case

In Matrix Projects (Qld) Pty Ltd v Luscombe [2013] QSC 4, Matrix Projects (Qld) Pty Ltd (Matrix) entered a Period Subcontract with Luscombe for 12 months to repair buildings which were damaged in the 2011 Brisbane floods for a lump sum.

Under the Period Subcontract, Matrix issued signed work orders to Luscombe. Matrix also give verbal directions, which Luscombe could either accept or reject. If Luscombe accepted a verbal direction, it would issue an invoice for payment by Matrix.

Luscombe performed works under at least 9 separate signed work orders and at least 5 verbal directions, before Matrix terminated the Period Subcontract. Luscombe served a payment claim on Matrix under the Building and Construction Industry Payments Act 2004 (Qld) (BCIP Act), which the adjudicator awarded payment to Luscombe of $407,455.19.

Matrix applied to the Supreme Court of Queensland to have the adjudicators’ decision declared void on two grounds:

  1. that the payment claim did not relate to a single ‘construction contract’ for the purposes of the legislation; and
  2. that the adjudicator had erred in allowing Luscombe payments for works until the end of the subcontract, rather than the date of termination by Matrix.

Matrix argued it always understood that the works for any specific project or building would be the subject of separate negotiations on scope and price before agreement was reached for each project, and that the subcontract was not intended to apply to any works performed under verbal directions.

The Court

The Court found that the legislation requires that a payment claim must relate to only one construction contract. However, Luscombe’s payment claim involved two separate claims – one for signed work orders issued under the Period Subcontract, and one for works performed under verbal directions. This was found to constitute two separate construction contracts and the payment claim was invalid.

Matrix also argued that the adjudicator had failed to exercise his power, by valuing Luscombe’s claim until the end of the Period Subcontract rather than up until the date of termination. Luscombe had only claimed until the termination date (essentially not making any claim for damages). The adjudicator assessed the progress payments against the lump sum prices agreed, and not the value of the work completed up to the reference date. The adjudicator did not request submissions on any alternative valuation methods, and Matrix argued this was a denial of natural justice.

Justice Douglas agreed that this adjudicator’s decision was outside of his power and was a “fundamental misapprehension of the task he faced”. Further, that by not requesting submissions on the valuation of the claim, there was a denial of natural justice.

Conclusion

The case highlights that the Courts are willing to reduce the scope of which types of agreements or construction contracts can be dealt with under security of payments legislation. Further, that adjudicators will be held accountable and will be scrutinised whilst performing their role under the legislation.

Key points/summary of impacts

  • The Courts are willing to reduce the scope of which types of agreements or construction contracts can be dealt with under security of payments legislation
  • Adjudicators will be held accountable and scrutinised whilst performing their roles under the legislation.